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4 Industrial Stocks Likely to Maintain Winning Streak in 2023
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The Zacks Industrial Products sector has put up a strong show in 2022 despite inflationary pressure and supply chain disruptions. As momentum in the U.S. economy continued, expansion in manufacturing activities supported strength across various end-markets, including gas, mining, refining, life science, chemical, agricultural, food, general industrial and energy, driving the performance of industrial stocks.
Per Institute for Supply Management (ISM) reports, the Manufacturing PMI (Purchasing Manager’s Index) remained above 50% through October, indicating continued expansion in manufacturing activities. This was supported by improvement in new orders and production. Companies like Applied Industrial Technologies (AIT - Free Report) , O-I Glass, Inc. (OI - Free Report) , Reliance Steel & Aluminum Co. (RS - Free Report) and Deere & Company (DE - Free Report) made the most of this buoyant scenario and are poised for growth in 2023 as well on strong fundamentals.
What’s in Store for Industrial Stocks in 2023?
Lately industrial demand has softened as the impact of the Fed’s aggressive monetary policy tightening became more prominent. November’s ISM report reveals that the Manufacturing PMI touched 49%, contracting for the first time since May 2020. A figure below 50 indicates a contraction in manufacturing activity, while the opposite reflects expansion. The index was 1.2 percentage points lower than that recorded in October. This can be linked to a reduction in new order rates. Industrial production also declined 0.2% in November, with a 0.6% decrease in manufacturing output.
Despite factors pointing to a lower-output scenario, there are certain bright spots for industrial companies in 2023. While supply chain disruptions have been a major headwind for these companies in the first half, the situation has begun to ease since the second half, with delivery lead times reducing and materials being more easily available.
Another obstacle for industrial companies has been raw material cost inflation, which weighed on margins and dented bottom lines. The Federal Reserve’s indication to slow down the pace of interest rate hikes "as soon as December", could bring about some respite to escalating raw material prices in 2023.
4 Top Industrial Stocks for 2023
The below-mentioned stocks, having put up solid performances in 2022 so far, represent good investment options for 2023. These stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy) and have a market capitalization of more than $1 billion. Stocks with larger market capitalization can better withstand market downturns and hence are considered safer bets. You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Industrial: This company distributes value-added industrial products — including engineered fluid power components, bearings, specialty flow control solutions, power transmission products and miscellaneous industrial supplies. Strength across the food & beverage, mining, metals, agriculture, chemicals and technology end-markets are driving Applied Industrial’s growth. Pricing actions are supporting AIT’s margins despite cost inflation. Backed by these tailwinds, shares of this Zacks Rank #1 company have gained 22.4% in the year-to-date period.
Easing supply chain disruptions are expected to foster Applied Industrial’s growth in 2023. The acquisition of Automation, Inc. (October 2022), which has expanded AIT’s footprint across key verticals and geographies as well as supplemented its value-added services and cross-selling efforts, is expected to bolster its top line in 2023. The Zacks Consensus Estimate for fiscal 2023 (ending June 2023) earnings has been revised upward by 4.6% in the past 60 days. The same for fiscal 2024 has moved northward by 5.3%. The company has a market capitalization of $4.77 billion.
O-I Glass: Being the largest manufacturer of glass containers in the world, this company has 72 glass manufacturing plants spread across 20 countries. O-I Glass is benefiting from its margin expansion initiatives, including improving productivity, operating performance and managing costs. The company has already reaped benefits of around $60 million so far this year, surpassing its annual target. OI’s investments in joint ventures and incremental capacity as well as bolt-on acquisitions are key growth drivers. Amid these positives, shares of this Zacks Rank #1 company have rallied 39.2% so far this year.
In 2023, O-I Glass is well poised to gain from the growing demand for glass on consumer preference for healthy, premium and sustainable products for food and beverage. The Zacks Consensus Estimate for the company’s 2022 and 2023 earnings has been revised upward by 2.7% and 7.2%, respectively, in the past 60 days. The company has a market capitalization of $2.53 billion.
Reliance Steel: Headquartered in Los Angeles, CA, this is a leading metals service center company engaged in value-added materials management and metals processing services. RS is being aided by strong demand in the non-residential construction market, its biggest end-market. Strategic acquisitions are driving the company’s performance. Shares of this Zacks Rank #2 company have gained approximately 25% so far this year due to these tailwinds.
Steady demand in toll processing services and strong demand in semiconductors and recovery across commercial aerospace and energy markets should fuel Reliance Steel’s growth in 2023. Expansion in the automotive, appliance, packaging, among other end markets is also expected to support the company’s growth. The Zacks Consensus Estimate for the company’s 2022 and 2023 earnings has been revised upward by 3% and 8%, respectively in the past 60 days. RS has a market capitalization of $11.75 billion.
Deere: Based in Illinois, IL, this company is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery. Strength in the Production & Precision Agriculture segment (primary unit) due to higher shipment volumes and price realization has been driving growth of the company, primarily due to which its shares have gained approximately 27% so far this year. Deere carries a Zacks Rank #2.
For 2023, Deere is well positioned to gain from improving commodity prices, which is expected to encourage farmers to spend more on farm equipment. Strong replacement demand is anticipated to continue boosting its top line. The Zacks Consensus Estimate for the company’s fiscal 2023 (ending October 2023) earnings has moved northward by 4.8% in the past 60 days. DE has a market capitalization of $129 billion.
Year-to-Date Price Performance
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4 Industrial Stocks Likely to Maintain Winning Streak in 2023
The Zacks Industrial Products sector has put up a strong show in 2022 despite inflationary pressure and supply chain disruptions. As momentum in the U.S. economy continued, expansion in manufacturing activities supported strength across various end-markets, including gas, mining, refining, life science, chemical, agricultural, food, general industrial and energy, driving the performance of industrial stocks.
Per Institute for Supply Management (ISM) reports, the Manufacturing PMI (Purchasing Manager’s Index) remained above 50% through October, indicating continued expansion in manufacturing activities. This was supported by improvement in new orders and production. Companies like Applied Industrial Technologies (AIT - Free Report) , O-I Glass, Inc. (OI - Free Report) , Reliance Steel & Aluminum Co. (RS - Free Report) and Deere & Company (DE - Free Report) made the most of this buoyant scenario and are poised for growth in 2023 as well on strong fundamentals.
What’s in Store for Industrial Stocks in 2023?
Lately industrial demand has softened as the impact of the Fed’s aggressive monetary policy tightening became more prominent. November’s ISM report reveals that the Manufacturing PMI touched 49%, contracting for the first time since May 2020. A figure below 50 indicates a contraction in manufacturing activity, while the opposite reflects expansion. The index was 1.2 percentage points lower than that recorded in October. This can be linked to a reduction in new order rates. Industrial production also declined 0.2% in November, with a 0.6% decrease in manufacturing output.
Despite factors pointing to a lower-output scenario, there are certain bright spots for industrial companies in 2023. While supply chain disruptions have been a major headwind for these companies in the first half, the situation has begun to ease since the second half, with delivery lead times reducing and materials being more easily available.
Another obstacle for industrial companies has been raw material cost inflation, which weighed on margins and dented bottom lines. The Federal Reserve’s indication to slow down the pace of interest rate hikes "as soon as December", could bring about some respite to escalating raw material prices in 2023.
4 Top Industrial Stocks for 2023
The below-mentioned stocks, having put up solid performances in 2022 so far, represent good investment options for 2023. These stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy) and have a market capitalization of more than $1 billion. Stocks with larger market capitalization can better withstand market downturns and hence are considered safer bets. You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Industrial: This company distributes value-added industrial products — including engineered fluid power components, bearings, specialty flow control solutions, power transmission products and miscellaneous industrial supplies. Strength across the food & beverage, mining, metals, agriculture, chemicals and technology end-markets are driving Applied Industrial’s growth. Pricing actions are supporting AIT’s margins despite cost inflation. Backed by these tailwinds, shares of this Zacks Rank #1 company have gained 22.4% in the year-to-date period.
Easing supply chain disruptions are expected to foster Applied Industrial’s growth in 2023. The acquisition of Automation, Inc. (October 2022), which has expanded AIT’s footprint across key verticals and geographies as well as supplemented its value-added services and cross-selling efforts, is expected to bolster its top line in 2023. The Zacks Consensus Estimate for fiscal 2023 (ending June 2023) earnings has been revised upward by 4.6% in the past 60 days. The same for fiscal 2024 has moved northward by 5.3%. The company has a market capitalization of $4.77 billion.
O-I Glass: Being the largest manufacturer of glass containers in the world, this company has 72 glass manufacturing plants spread across 20 countries. O-I Glass is benefiting from its margin expansion initiatives, including improving productivity, operating performance and managing costs. The company has already reaped benefits of around $60 million so far this year, surpassing its annual target. OI’s investments in joint ventures and incremental capacity as well as bolt-on acquisitions are key growth drivers. Amid these positives, shares of this Zacks Rank #1 company have rallied 39.2% so far this year.
In 2023, O-I Glass is well poised to gain from the growing demand for glass on consumer preference for healthy, premium and sustainable products for food and beverage. The Zacks Consensus Estimate for the company’s 2022 and 2023 earnings has been revised upward by 2.7% and 7.2%, respectively, in the past 60 days. The company has a market capitalization of $2.53 billion.
Reliance Steel: Headquartered in Los Angeles, CA, this is a leading metals service center company engaged in value-added materials management and metals processing services. RS is being aided by strong demand in the non-residential construction market, its biggest end-market. Strategic acquisitions are driving the company’s performance. Shares of this Zacks Rank #2 company have gained approximately 25% so far this year due to these tailwinds.
Steady demand in toll processing services and strong demand in semiconductors and recovery across commercial aerospace and energy markets should fuel Reliance Steel’s growth in 2023. Expansion in the automotive, appliance, packaging, among other end markets is also expected to support the company’s growth. The Zacks Consensus Estimate for the company’s 2022 and 2023 earnings has been revised upward by 3% and 8%, respectively in the past 60 days. RS has a market capitalization of $11.75 billion.
Deere: Based in Illinois, IL, this company is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery. Strength in the Production & Precision Agriculture segment (primary unit) due to higher shipment volumes and price realization has been driving growth of the company, primarily due to which its shares have gained approximately 27% so far this year. Deere carries a Zacks Rank #2.
For 2023, Deere is well positioned to gain from improving commodity prices, which is expected to encourage farmers to spend more on farm equipment. Strong replacement demand is anticipated to continue boosting its top line. The Zacks Consensus Estimate for the company’s fiscal 2023 (ending October 2023) earnings has moved northward by 4.8% in the past 60 days. DE has a market capitalization of $129 billion.
Year-to-Date Price Performance
Image Source: Zacks Investment Research